One law dictionary defines “cumulative evidence” as “(F)acts or information that proves what has previously been established by other information concerning the same issue.” Another equates cumulative evidence with corroborative evidence, but the term “cumulative evidence” more commonly, and more properly, means unnecessary evidence, proffered to prove what is already adequately established.

So maybe Larry J. Roberts, T. C. Memo. 2012-197, filed 7/16/12, is cumulative evidence for my oft-reiterated point that merely being admitted to practice as an attorney is an insufficient qualification for admission to practice before Tax Court. See my blogposts “A Book and a Modest Proposal”, 5/22/12, and “Another Argument”, 6/7/12.

Larry represents himself, and Judge Wherry writes the opinion. “Petitioner is an appellate lawyer who failed to file Federal income tax returns for the 2004 through 2007 tax years.” T. C Memo. 2012-197, at p 3. Not an encouraging start, and it doesn’t get better.

Judge Wherry says IRS “audited” those returns, but how IRS could do so if they were never filed eludes me. Shouldn’t IRS have issued SFRs? Howbeit, deficiencies are issued, Larry petitions Tax Court, and the trial gets continued when Larry does file the missing returns in 2011 (so what did IRS audit, Judge Wherry?).

Apparently IRS buys Larry’s belated returns for 2004 and 2006, but 2005 and 2007 are still disputed.

Larry leads with his chin. “Petitioner seems to argue that he believes the period of limitations for assessment for each of the tax years at issue has expired. He did not file his tax returns until after the initiation of the case before the Court, on the eve of the first calendaring of trial. ‘In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.’ Sec. 6501(c)(3). The statute of limitations does not bar this case.” 2012 T. C. Memo. 197, at p. 6. Yet ol’ Larry could be automatically admitted to practice before Tax Court, right?

IRS and Larry have the usual Schedule C deductions jump-ball, but Larry submits neither receipts, nor account ledgers, nor travel logs, so what IRS allows him is all he gets. Plus, at no extra cost, he gets from Judge Wherry the usual INDOPCO-Section 274 lecture. Larry testifies on the trial: “I prepared my claimed deductions by going and finding my check registers for those years, going through the check registers where I routinely note what the check was for and make a check mark on it if I think that it’s possibly a business expenses.” T. C. Memo. 2012-197, at p. 11.

But Judge Wherry will have none of it. “Petitioner did not present the check registers at trial, nor did he present any documentary evidence to substantiate any of the claimed expense deductions.” T. C. Memo. 2012-197, at pp. 11-12 (Footnote omitted).

Finally, Larry is fighting over his cost basis for a property he sold in 2005. Give him credit for ingenuity, if not a clear and distinct perception of the IRC. “Petitioner also made a novel argument not based in the Internal Revenue Code, that the basis should be the fair market value on the date that he converted it to a rental property. Although property that has been converted from personal use to an income-producing use and sold for a loss will have the basis of the lesser of the fair market value at the time of conversion or the adjusted cost basis, sec. 1.165- 9(b), Income Tax Regs., there is no corresponding regulation for a property sold at a gain; and even if this regulation applied to the property, the lesser basis amount is petitioner’s adjusted cost basis.” T.C. Memo. 2012-197, at p. 8, footnote 3.

Sorry, Judge Whelan. I told you that attorneys should take the Tax Court admissions exam like everybody else. This is an idea whose time has come years ago.

“He who tells too much truth is sure to be hanged.” G. B. Shaw

This is the lesson taught to Deputy Tina Aginaga of the Oakland County (MI) Sheriff’s Department by Judge Laro in Scott M. Eriksen, et al., T.C. Memo. 2012-194, filed 7/12/12. Tina is one of the “al”s.

Tina was one of a group of deputies, hereinafter the “al”s, all of whom had their tax returns prepared by Jim Kern or his successor Curt Redinger. Jim was an EA and Curt was a CPA, and both of them were rogues. They specialized in preparing tax returns for officers of the law, inventing deductions and ignoring unsubstantiated expenses. They also failed to find out if any of the deductible expenses they claimed for their clients were non-deductible because reimbursable.

Ultimately the forces of righteousness catch up with Jim and Curt, and CID nails them both for Section 7206(2) aiding and abetting false returns.

Judge Laro: “During his plea allocution Mr. Kern stated that not all returns he prepared were fraudulent. Upon further questioning from the District Court on that point, Mr. Kern represented that of the 1,900 or so tax returns that he prepared annually, between 30 and 40 were false. He also maintained that the IRS was, in some instances, challenging legitimate deductions.

“As part of his criminal plea agreement, Mr. Redinger agreed to disclose to the IRS false and fraudulent Federal tax returns that he and Mr. Kern prepared. In furtherance thereof, on November 25, 2008, Mr. Redinger submitted to a revenue agent in respondent’s civil division a partial list of clients for whom he and Mr. Kern prepared false tax returns for 1999, 2000, and/or 2001. Petitioners were not included in that summary, and the record is not clear as to whether Mr. Kern or Mr. Redinger provided a more comprehensive list to CID at another time. Nor is the record clear as to whether Mr. Kern agreed to cooperate with the IRS or whether he participated in preparing Mr. Redinger’s list.” T.C. Memo. 2012-194, at pp. 11-12.

IRS gets Jim and Curt’s client list and starts pulling returns for audit. But the three-year statute of limitations has run, so IRS claims fraud. But the “al”s claim no fraud, so the statute has run.

There are two elements to establishing fraud: first, an understatement of tax, and second, an intent to deceive. “Clear and convincing” is the degree of proof, and the burden is on the IRS.

All the “al”s, Tina included, stipulated that, if the statute of limitations wasn’t a bar, they agree to the deficiencies IRS asserted in the returns Jim and Curt prepared. But IRS can’t bootstrap that stipulation into an admission of fraud; IRS still has to show clear and convincing evidence of an intent to deceive.

IRS is prepared to trot out 150 guardians of the peace to prove that Jim and Curt were rogues and plunderers of the fisc. OK, says Judge Laro, but that doesn’t mean that the “al”s in this case had fraudulent intent.

All the “al”s testified on the trial. Judge Laro said this about the testimony of all the “al”s, except  Tina: “We found this testimony general, vague, and perhaps coordinated, yet respondent did not examine Deputy Eriksen, Hardin, or Kesselring to such a degree as to destroy his credibility. As to claimed deductions for weapons, ammunition, protective equipment, and professional subscriptions, respondent did not offer evidence that Deputies Eriksen, Hardin, and Kesselring did not purchase such items. Such an allegation might have been easily proven by, for example, introducing bank records, credit card statements, and/or gun records as to whether each deputy petitioner purchased the claimed items. See 18 U.S.C. sec. 923(g)(1)(A) (2012) (requiring firearms dealers to maintain records of firearms sales ). Respondent introduced no such evidence.” T.C. Memo. 2012-194, at p. 29.

Merely because the “al”s didn’t contest the deficiencies doesn’t mean they committed fraud. All that does is raise a suspicion, and that doesn’t get it. So IRS’ trial counsel didn’t net all the fish they sought, but Tina was out there alone.

“Respondent [IRS] asserts, and we agree, that Deputy Aginaga testified honestly and credibly. Her testimony, however, serves as the direct evidence that each of her returns for 1999 through 2002 was false and fraudulent. Deputy Aginaga’s trial testimony establishes that she ‘never’ purchased a gun or ammunition during any year at issue and that she explained as much to Mr. Kern. Deputy Aginaga’s statements on brief are consistent on this point in that she stated that ‘she did not actually purchase a gun or ammunition during the years at issue.’ Yet each return claimed as an unreimbursed employee expense deduction amounts for weapons and ammunition. By Deputy Aginaga’s admission, therefore, each of her returns at issue contained false or fraudulent deductions for a weapon and ammunition. We regard Deputy Aginaga’s admissions as direct evidence of Mr. Kern’s willingness to commit fraud with intent to evade tax as it relates to each of her returns.

“When viewed against the other indicia of fraud exhibited by Mr. Kern, the preparer who prepared each of Deputy Aginaga’s returns, we are convinced that each of Deputy Aginaga’s returns at issue was false or fraudulent.” T. C. Memo. 2012-194, at pp. 31-32.

Of course, if IRS establishes one part of one return was fraudulent, then they’re all fraudulent, and the statute of limitations is open indefinitely. So Tina’s stipulation that if fraud is shown, the deficiencies are valid notwithstanding the statute of limitations, gets her hooked. And of course she gets the accuracy penalties, as she credibly testifies she didn’t review her return before signing and filing.

No need to cross-examine a witness skillfully when she sticks her head in the noose for you.

That’s Judge Kroupa’s lesson for Brookie Ashland, CEO of Cutler & Co., LLC, which checked the box as a partnership. The case is Stephan F. Brennan and Beth A. Brennan, T. C. Memo. 2012-187, filed 7/9/12, but Steph and Beth are consolidated with Brookie and Melvin W.

Cutler ran stock portfolios, and allegedly made a huge guaranteed payment to Melvin W. and another to Furey (a partner who bailed out and settled with IRS pre-trial), which resulted in a big loss pass-through to the Cutler partners. Meanwhile, Brookie and Melvin W. had created Airport Plaza, a partnership, to which Brookie and Steph contributed their membership interests in Cutler. So Airport Plaza was a partner of Cutler for tax purposes.

Brookie and Melvin W. take big loss carryforwards and carrybacks, as do Steph and Beth, but IRS blows up the whole deal. Brookie, Melvin W., Steph and Beth all petition, but admit that neither Melvin W. nor Furey ever got the guaranteed payments.

IRS moves in mid-trial to dismiss for lack of jurisdiction, as the issue of the pass-through loss from Cutler to Airport Plaza to Steph and Brookie are TEFRA (partnership) items, not individual items, and that the statute of limitations has run on TEFRA adjustments to Cutler for both IRS and Brookie.

After briefing and trial, Judge Kroupa bounces the whole case.

Subject-matter jurisdiction is critical, and can be raised at any time by any party or by the Court itself; it cannot be waived, because it goes to the heart of whether the Court has the right to decide anything.

And here, says Judge Kroupa, there is no right. Brookie claims that Cutler is exempt from TEFRA as a small partnership. “The parties’ dispute over Cutler’s TEFRA status centers around whether Cutler qualified for the small partnership exception to TEFRA. See sec. 6231(a)(1)(B). The small partnership exception exempts certain partnerships with 10 or fewer partners from the provisions of TEFRA on an annual basis. Id. The small partnership exception does not apply to a partnership for a taxable year if any partner in the partnership during that taxable year is a ‘pass-thru’ partner as defined in section 6231(a)(9). A ‘pass-thru partner’ means a partnership, estate, trust, S corporation, nominee or other similar person through whom other persons hold an interest in the partnership. Sec. 6231(a)(9).” T.C. Memo. 2012-187, at pp. 8-9.

So we come to Airport Plaza (AP). Was AP a partner in Cutler? If so, no small partnership exception to TEFRA, and Brookie is out.

AP was supposed to dissolve by its own terms the year before the big loss, except it didn’t. It was still executing documents during the year at issue. Even if it was winding down in that year, it was still a partnership until all assets were distributed and all activity ended.

Brookie claims AP wasn’t a real partnership, but that gets nowhere. She created AP, and signed AP’s tax return (a Form 1065). Judge Kroupa: “A taxpayer is free to conduct business through a variety of business organizations. Once a business form is chosen and reported on a return, however, the taxpayer bears the risk that its chosen form is valid for Federal tax purposes. The Court of Appeals for the Ninth Circuit has held the Commissioner may bind a taxpayer to an adopted business form that the taxpayer represents as valid. This rule holds true even if the adopted business form in substance is invalid for tax purposes. The rule exists because to permit taxpayers to challenge at will their own adopted form in favor of what they assert is actually the true substance would encourage post-transactional planning, promote unwarranted litigation by taxpayers, and raise a heavy administrative burden on the Government, including substantial problems of proof.

“We shall not allow the Ashlands to disavow Airport Plaza’s validity as a partnership for tax purposes under the circumstances.” T. C. Memo. 2012-187, at pp. 11-12 (Citations omitted.)

Takeaway–You choose it, you’re stuck with it.

Or At Least No More Than 25 Questions

So says IRS, unless it’s to do with the deficiency specifically or to advance the Tax Court case. General objections to taxing authority do neither. So STJ Panuthos issues a protective order in favor of IRS in Nia Karan Young, Docket No. 1284-12. You can’t quote this, of course, but it’s an example of how interrogatories and requests for admission should be served and filed. And there were no decisions out of Tax Court today.

Nia’s request for admissions, she said,  “focused on the legitimate legal issue of how the statutes of the IRC actually make an identifiable declaration that a specific person or group of persons are plainly and clearly made LIABILE [sic] for the payment of the tax at issue”. Order, at p. 1. She also asked that she be permitted to reduce her list of interrogatories.

Take it away, STJ Panuthos: “Rule 90(b), Tax Court Rules of Practice and Procedure, requires that a party making a request for admissions ‘shall simultaneously serve a copy thereof on the other party and file the original with proof of service with the Court.’ Petitioner in this case has failed to file her original request for admissions with the Court as of the date of this order. Furthermore, the requests are generally directed at the Federal government’s authority to tax and do not appear to advance the development of the case.

“Petitioner’s interrogatories to respondent exceed 25 questions according to Rule 71(a), Tax Court Rules of Practice and Procedure. Additionally, pursuant to Rule 70(a)(2), petitioner served petitioner’s interrogatories to respondent before the expiration of 30 days after joinder of issue. See Rule 38, Tax Court Rules of Practice and Procedure. Furthermore, the interrogatories are not simple questions such as those contemplated by Rule 71 and are generally directed at the Federal Government’s taxing authority. See, e.g., Roat v. Commissioner, 847 F.2d 1379, 1382-1383 (9th Cir. 1988) (upholding this Court’s granting of a protective order against discovery where the taxpayers propounded interrogatories, dealing mainly with the Government’s authority to tax, to which a response would have been ‘onerous and pointless’, and made no effort to consult informally).” Order, at p. 1.

STJ Panuthos warns Nia than any more of these shenanigans will result in a Section 6673(a)(1) hit to her wallet.

Takeaway- If questions arise, try informally. And if all else fails, follow the rules.

It’s a many-times-told tale for the tax practitioners, but it’s news to Yoron D. Israel, in the eponymous T. C. Memo. 2012-185, filed 7/5/12.

Yoron and Mrs. Yoron parted ways, with Yoron getting the dependents’ exemptions for their three kids in odd-numbered years for the child support he paid–and paid–and paid. But what didn’t Yoron get (no prize for the correct answer)?

A properly completed and signed Form 8332; or a written declaration with the necessary information (wife’s SSAN, agreement not to claim dependents’ exemptions, and specific years to which the foregoing applies), that’s what.

Yoron attaches a copy of the divorce decree to his return for the year at issue, but it’s unsigned by the former Mrs. Yoron, and even though Yoron pursues her through the courts of Massachusetts (his home) and Arizona (whither she flees), he gets nada, as they say in Arizona.

Yoron tells his sad tale at a CDP, because he doesn’t file a petition when he gets the SNOD. He has entered into an installment agreement, but wants to contest his liability.

Judge Cohen could blow Yoron off with a simple “you’re too late to contest your liability, IRS wasn’t arbitrary or capricious, so have a nice day”.

But Judge Cohen is a softie, and anyway “(B)ecause petitioner’s efforts have been consistent and in good faith, we believe he is entitled to an explanation of why those exemptions were disallowed. So far as the record reflects, he has not been given an adequate explanation.”  T. C. Mem. 2012-185, at pp. 4-5.

Of course we know the answer. No Form 8332 or equivalent means no exemption, where taxpayer can’t establish child(ren) lived with taxpayer more than half the year. And Yoron admits they didn’t.

So Judge Cohen gives Yoron the bad news: “As unfair as it may seem to petitioner, the statute, regulations, and numerous cases subsequent to Miller v. Commissioner, 114 T.C. at 187-189, compel the conclusion that his former wife’s failure to execute the required declaration defeats his claim to the exemptions for 2007. See Santana v. Commissioner, T.C. Memo. 2012-49; Nixon v. Commissioner, T.C. Memo. 2011-249; Briscoe v. Commissioner, T.C. Memo. 2011-165; Himes v. Commissioner, T.C. Memo. 2010-97; Gessic v. Commissioner, T.C. Memo. 2010-88; Thomas v. Commissioner, T.C. Memo. 2010-11. T.C. Memo. 2012-185, at p. 8.

I blogposted Nixon, “Kicking Richard Nixon,” 10/5/11, and Briscoe, “Supported Child, Unsupported Exemption” , 7/11/11. And Judge Holmes’ goalline save in Gary L. Scalone and Sandra Vieira Scalone, 2012 T. C. Sum. Op. 40, filed 5/2/12, a Section 7463 “don’t quote me” (see my blogpost “Get the Years Right”, 5/2/12) doesn’t help, because there the wife signed Gary’s decree, and Mrs. Yoron didn’t.

Bottom line–Divorce lawyers, one of these cases is going to result in a professional liability claim if you don’t get duplicate original Forms 8332, filled in and signed by adversary spouse, before you enter the final decree, and make sure your client attaches one to the first return where the client claims the exemptions. Keep the duplicate originals in case IRS loses one. Or if the adversary spouse refuses to provide signed Form 8332, warn your client in writing.

So that taxpayers might be more completely confused and misled. Or perhaps I missed something: is it not the aim of our system of taxation to confuse and mislead taxpayers so as to deprive them of whatever rights Chief Justice Roberts will still allow to them?

No decisions out of Tax Court today, so here’s an order from Chief Judge Thornton, Michele A. & Ray V. Vunovich, Docket No. 6493-12, filed 7/3/12.

Mich and Ray got a SNOD, and filed their petition with Tax Court 100 days later; of course that’s a no-no, as the magic number is ninety (90) days, per statute. The section 7502 savings clause says timely mailed is timely filed, but must be properly addressed.

Here’s Mich and Ray’s story, as told by Chief Judge Thornton: “’The paperwork sent to us by the IRS included a self addressed envelope with the IRS address on it. Since the paperwork was a notice to us about our right to appeal their determination, it seemed obvious that any response we had was to be directed to the address on the envelope.

“’That is why we sent our appeal to that address. And when we were notified that we sent it to the wrong address, we promptly forwarded it to the proper address.’

“Consistent with petitioners’ representations, the record herein reflects that the petition was initially addressed and sent by certified mail to the ‘Internal Revenue Service, Kansas City Appeals Office’ in Kansas City, Missouri, on February 28, 2012. The materials likewise show that the petition was received by that office on February 29, 2012. It was then returned to petitioners and resent by them to the Tax Court, with the original envelope included.

“Thus, petitioners’ objection and other documents in the record show that, after receiving the notice of deficiency, petitioners continued to communicate with the IRS.” Order, at p. 2.

Doesn’t help; Chief Judge Thornton again: “Even confusing IRS responses or correspondence during the administrative process cannot override the clearly stated deadline in the statutory notice of deficiency. Such confusion is not uncommon given that the IRS frequently treats as separate processes or proceedings what taxpayers view as a single dispute. Here, it appears that petitioners may have conflated this Court with an IRS unit, but the IRS is a completely separate and independent entity from the Tax Court. Similarly, the inclusion of an pre-addressed envelope directed to the IRS, while understandably confusing, is likely explained by the fact that a notice of deficiency provides taxpayers with several options, some of which occur administratively between the taxpayer and the IRS (such as submitting a waiver rather than contesting the deficiency before the Tax Court).” Order, at p. 2.

How unrepresented, pro se litigants are supposed to know this, when I am prepared to wager that a large proportion of the attorneys admitted to practice law  in any jurisdiction wherein the Tax Court sits (and who are presumably eligible for automatic admission to Tax Court) haven’t a clue, is nowhere explained.

Short answer: Mich and Ray are out, their petition is filed too late, misleading information from IRS to the contrary notwithstanding. But if the correspondence from IRS contains numerous options, might it not be well to state in plain English: “If you want to go to Tax Court, which is not part of the IRS so don’t write to us, file your petition with them at 400 Second St NW Washington DC, nowhere else, within 90 days. If you don’t, you’re out!”?

National Taxpayer Advocate Olson, please copy.

In the modification of a divorce decree, that’s where, according to Judge Marvel, in a Section 7463 “don’t quote me”, James P. Chiavacci and Joyce L. Chiavacci, 2012 T.C. Sum. Op. 63, filed 7/2/12.

Jim and Leigh parted ways years ago. Jim asked for a modification of alimony awarded in the judgment of divorce (which expressly stated alimony ended with death or remarriage). Leigh said no, but the divorce court judge said “talk among yourselves”, so they negotiated a $20,000 buyout.

Unfortunately, Jim’s lawyer just sent Leigh’s lawyer the bank check from Jim, and asked Leigh’s lawyer to draft up something for the divorce court that the alimony portion of the judgment of divorce was modified. Jim’s lawyer also represented Jim in Tax Court.

Judge Marvel: “…the district court entered an order amending the divorce judgment (amending order). The amending order contains the following statement: ‘By agreement of the parties, Spousal Support is terminated effective September 2, 2007. In all other respects, the Divorce Judgment dated January 10, 1994, as amended on August 31, 2001, remains in full force and effect.’ The amending order makes no reference to Mr. Chiavacci’s $20,000 payment to Ms. Charles.” 2012 T.C. Sum. Op. 63, at p. 5.

That sinks Jim. The $20,000 payment is a debt from Jim to Leigh, not alimony any more. By terminating the entire alimony obligation, the “death or remarriage” clause was also terminated, and under State law (Maine in this case), while alimony terminates with death, debts don’t. That Leigh was alive when she got the check “mox nix”, as we old Army types say, “don’t matter”.

Divorce lawyers, please don’t forget to add the words “this obligation terminates with death” to every document, every letter, every modification. I don’t name Jim’s lawyer, because I’m sure Jim will make him suffer enough.

I take my text from the 1965 Richard Rodgers-Stephen Sondheim musical, because we are given a waltz indeed, courtesy of Steven J. Stanwyck, Petitioner, and Joan Stanwyck, Intervenor, 2012 T.C. Mem. 180, filed 6/28/12. I come late to this dance, having been absorbed by, and absorbing, the National Society of Tax Professionals summer jamboree in sunny Williamsburg, VA.

The chief waltzer here is Steve the disbarred attorney. Joan was his wife of 32 years and his bookkeeper, but we hear nothing about her.

Steve did plenty. Judge Kroupa: “Petitioner continues his pattern of delay and attempts to prolong our review by failing to provide a post-trial brief.  Instead he has made various nontraditional motions.  Petitioner is an experienced trial attorney.  The Court warned him on several occasions that we would decide this case based on the record if he failed to provide a post-trial brief.  The Court established a briefing schedule at the end of trial.  Petitioner disregarded the Court’s order, and his inaction is independent grounds to deny his request for us to consider respondent’s denial of his claims. See Rule 123.  Failure to provide the post-trial brief is also grounds to decide against the party with the burden of proof.” 2012 T.C. Mem. 180, at pp. 7-8. (Citations omitted.)

Not a whit dismayed, Steve asks for innocent spouse relief. This is denied, as the items giving rise to the deficiencies are entirely Steve’s.

Finally, Steve objects to the collection process. Judge Kroupa: “We again note that petitioner failed to file any post-trial brief. Petitioner’s testimony and examination of witnesses were incoherent and irrelevant.  We therefore must look to the defects petitioner set forth in the petition.  They are the same issues petitioner raised in requesting a hearing.” 2012 T.C. Mem. 180, at p. 16.

Steve claimed he was disabled and not accommodated, but later admitted he was not disabled. He sought discovery, but that isn’t allowed on a CDP. What is allowed is the filing of a NFTL while a section 6015 innocent spouse request is being decided by Appeals.

To sum up, “In toto, petitioner bombarded respondent for 18 months with irrelevant information, failed to provide requested information and ultimately ignored communications from respondent.  Petitioner requested in-person hearings to resolve each issue, yet failed to appear.  There were more than 20 written communications and 10 phone calls between petitioner and respondent. Respondent verified that legal requirements were met, considered all issues raised, and concluded that the collection action was no more intrusive than necessary. Respondent did not abuse his discretion by sustaining the collection action.

“As a final matter, we address whether it is appropriate for us to impose a penalty against petitioner on our own motion under section 6673.  This section authorizes the Tax Court to require a taxpayer to pay to the United States a penalty of up to $25,000 whenever it appears that proceedings have been instituted or maintained primarily for delay or that the taxpayer’s position in such proceedings is frivolous or groundless. The Court has indicated its willingness to impose such penalties in collection review cases.

“It is apparent from the record that petitioner instituted this proceeding in continuation of his refusal to acknowledge and satisfy his tax obligations.  Such proceedings waste the Court’s and respondent’s limited resources, taking time away from taxpayers with legitimate disputes.  Although we do not impose a penalty on petitioner pursuant to section 6673(a)(1) at this time, we admonish petitioner that the Court will consider imposing such a penalty if he advances arguments similar to those raised here.” 2012 T. C.Mem. 180, at pp. 19-20 (Citations omitted.)

Judge, if you don’t impose the section 6673 penalty in this case, in what case will you impose it?

Doesn’t get you a charitable deduction this time, says Judge Dawson, in Upen G. Patel and Avanti D. Patel, 138 T.C. 23, filed 6/27/12.

Upen and Avanti wanted to demolish the house on land they bought in Vienna, VA, up the road a piece from us here at the NSTP Summer Session. The Fairfax County Firefolks had a program whereby they would burn down your house (with your consent and your mortgagee’s, of course) to train their firefighters. Upen and Avanti wanted the house removed anyway, so they handed the keys to the firefolks and told them to do their thing, claiming a charitable deduction.

IRS invokes the Section 170(f)(3)(A) amendment to Section 170, the “no partial interest deduction” rule, claiming the most that Upen and Avanti gave the Vienna Firefighters was a license to go onto their land and burn down a structure for which (a) Upen and Avanti had obtained a demolition permit and (b) obtained construction financing for a brand-new house and (c) in which Upen and Avanti never lived.

The house and the land are inseparable, under Virginia law. Judge Dawson: “Where a taxpayer contributes to a charity an interest in a building that is part of the land under State law but retains all title to and interest in the remaining land, the taxpayer has donated less than his entire interest in the land.  The taxpayer will not be allowed a charitable contribution deduction unless the donated interest falls within the exceptions of section 170(f)(3)(B).

“In the case at hand, the house was attached to the land and was conveyed to petitioners along with the land when they purchased the Vienna property.  Under the common law and the laws of Virginia, the house was part of the land that is the real estate we refer to as the Vienna property.  Petitioners’ purported contribution of the house to FCFRD [the firefighters] was a contribution of less than their entire interest in the Vienna property.” 138 T.C. 23, at p.19.

So, no charitable contribution for Upen and Avanti.

But they dodge penalties, because when they filed their return, the law had not been settled as it is now, and old pre-amendment precedent existed that might have justified their position.

In Bob Dylan’s words from his 1970 ballad, “You’ll not see nothin’ like the mighty Quinn”, but hers is a sad tale, told by Judge Kroupa, in Jacynthia Quinn, 2012 T.C. Memo. 178, filed 6/27/12.

Jacynthia (great name) was a longtime IRS tax compliance officer, still employed by IRS at time of trial. But Jacynthia went rogue, fabricating medical and dental deductions and inventing charitable contributions. I won’t go into the sorry details, the blatant forgeries and continuous efforts to thwart the resolution of this matter.

Her husband testified against her, as did officers of the various charities to which Jacynthia claimed she made contributions and proffered altered documents to substantiate. She was unable to spell the name of the doctor to whom she claimed she had paid substantial medical bills.

And she claimed dependent exemptions for dependents who clearly weren’t.

In short, there was clear and convincing evidence enough for the imposition of civil fraud.

It’s sad that someone would throw away their career for $17,000 of deductions. And sadder that it would be one sworn to uphold the law.